category income is the type included in FPHCI
and/or PFIC QEF gross
(34) The gain earned by the CFC, assuming there is a gain, would be passive and would generally be considered FPHCI
. (35) As a result, the gain would be treated as subpart F income taxable to each U.S.
954, when a CFC earns FPHCI
, which includes passive income such as rents or royalties, the income generally is includible in the CFC's U.S.
[H&C's] assets immediately following its election to be disregarded as an entity separate from its owner gives rise to gain that is not foreign personal holding company income as defined in section 954(c)(1)(B) of the Internal Revenue Code." Section 954(c)(1)(B)(iii) defines FPHCI
in part, and is part of Subpart F that concerns controlled foreign corporations (CFCs).
A foreign corporation is a PFIC if: (1) seventy-five percent or more of its gross income for the taxable year is passive income; or (2) the average percentage of assets (by value) held by the corporation for the production of income is at least fifty percent.(244) Passive income generally means income that would be FPHCI
under Subpart F.(245) Generally, a U.S.
954(c)(2)(A) excludes from the scope of rents and royalties from FPHCI
those derived by a CFC in the active conduct of a trade or business and received from unrelated persons.
image rights have significant value compared to his worldwide image rights), that income likely would be considered FPHCI
and, therefore, subject to current U.S.
For example, a foreign company may elect to exclude from FPHCI
any foreign exchange gain from working capital sitting in a non-interest-bearing account (thus not giving rise to interest income) and held to purchase inventory used in the ordinary course of business to produce sales income.
954 defines "foreign base company income" as the sum of a CFC's FPHCI
, foreign base company sales income, foreign base company services income, and foreign base company oil-related income for the tax year.
(8) For purposes of this article, the primary category of subpart F income is foreign base company income (FBCI), (9) which includes foreign personal holding company income (FPHCI
), foreign base company sales income (FBC sales income), and foreign base company services income (FBC services income).
954(c)(1) generally defines foreign personal holding company income (FPHCI
), one type of subpart F income, to include the excess of gains over losses from the sale of property giving rise to rents or royalties, other than rents and royalties derived in an active trade or business from an unrelated person (the active rent/royalty exception).
For purposes of PFIC determination, passive income is foreign personal holding company income (FPHCI
) as defined in Sec.